Scottish Court of Session Decisions

At advising on 14th October 1977, the opinion of the Court was delivered by the Lord President.

LORD PRESIDENT (Emslie).—The respondent is a young man who holds a degree in Mechanical Enginering and Business Studies. By the end of 1976 he had had experience in the manufacturing side of the garment industry. In January 1977 he joined the petitioners as a management trainee. The petitioners are a limited company with a place of business at Nottingham. They are a wholly owned subsidiary of Blue Bell Incorporated of North Carolina which, with its subsidiaries in many countries of the world, is said to be one of three companies which dominate the world market in jeans. The jeans which they make are known by the name "Wrangler." According to the averments introduced by amendment in the Inner House, the petitioners are themselves engaged in a world-wide trade of selling "Wrangler" jeans and for aught yet seen they make and sell no other product. According to the averments, further, the petitioners employ in the manufacture of their jeans various trade secrets, including machines invented by their American parent, and methods of working unknown to their competitors.

On joining the petitioners' service the respondent entered into a Security Agreement with them. The preamble identifies the respondent as a person likely to work with methods, procedures, equipment and other confidential information that are in the nature of trade secrets. It then makes reference to the origin of these trade secrets and to the obligation of the petitioners to protect them in order that the group may benefit from them. In short the preamble makes it clear that the objective of the Agreement is to prevent unauthorised disclosure by the respondent of trade secrets and confidential information to which he is likely to have access in the course of his employment with the petitioners. By Article I of the Agreement the employee (the respondent) is taken bound not to make any unauthorised disclosure of, inter alia, any of the trade secrets of the petitioners or of any wholly owned subsidiaries of the American parent company. Article II provides that "the employee agrees that" except with written permission from the petitioners he will not for a period of two years after the end of his employment with them "perform any services, either as owner, partner, employee, or consultant for any person or business entity" in competition with the petitioners.

From the petition we learn that the respondent was trained at their main Scottish factory at Falkirk and visited their other factories at Stirling and Kilwinning. In or about March 1977 he was, it appears, appointed Assistant Plant Manager at Kilwinning and from June 1977 was in sole charge there. By the middle of July the petitioners had it in mind to offer the respondent the post of manager of one of their Scottish factories. The respondent, however, then intimated his intention to leave the petitioners' employment on 31st August 1977 to take up employment which had been offered to him by Levi Strauss & Co. When he left them on that date the petitioners brought this petition to enforce by interdict the restrictions placed on the respondent by Articles I and II of the Security Agreement. They did so because according to the averments, the respondent had learned trade secrets of the petitioners in the course of his service with them, and because his prospective employers are one of the two major competitors of the petitioners, and the group of which they are part, in the world market in jeans. In the prayer of the petition the order sought was to interdict the respondent "from entering into employment with Levi Strauss & Co. either in the United Kingdom or elsewhere in the world" and "from communicating to the said Levi Strauss and Co. or any other trade competitors of Blue Bell Inc. and their subsidiaries" certain trade secrets learned by the respondent from the petitioners.

In seeking the first order for intimation and service of the petition the petitioners moved for and were granted interim interdict in terms of both branches of the prayer. When answers had been lodged by the respondent the Vacation Judge on 14th September 1977 heard debate on the respondent's motion for recall of the interim interdict, and by his interlocutor of 15th September he granted that motion in part, and gave leave to reclaim. What he did was to recall the interim interdict in so far as it related to the respondent's entering into employment with Levi Strauss, leaving intact the prohibition against disclosure of trade secrets. We are informed that the petitioners sought to persuade the Vacation Judge to suspend the recall of the interim interdict pending the outcome of a reclaiming motion but he declined to do so. What happened thereafter, according to averments added by amendment, is that the respondent took up employment with Levi Strauss & Co. on 16th or 19th September 1977 and the petitioners say that he was employed as a manager in the jeans manufacture section of that company.

In this reclaiming motion the petitioners have moved us upon the unadjusted pleadings which have been expanded somewhat by amendment to restore the interim interdict recalled on 15th September 1977. No question arises as to the interim interdict against disclosure of trade secrets by the respondent and all that requires to be said in that connection is that the respondent did not seek to disturb the finding by the Vacation Judge that the petitioners' averments were prima facie sufficient to support a case that they enabled the respondent to obtain confidential information relating to trade secrets in respect of which they are entitled to protection. The argument must accordingly be approached on the footing that at this stage it must be assumed that the respondent is in possession of trade secrets which it is important and reasonable for the petitioners to protect by interdict against their disclosure by the respondent to one of their major competitors in the world market in jeans.

In opening his submission, counsel for the petitioners reminded us that a prohibition against disclosing trade secrets is practically worthless unless it is accompanied by a restriction upon the employee possessed of secrets against entering the employ of rivals. This has been recognised in judicial pronouncements over the years and the Vacation Judge in his opinion notices certain well known cases in which such pronouncements have been made. Further, if an employer arms himself only with a covenant against disclosure of secrets it may well be very difficult for him to detect in advance any breach of that covenant. The justification for taking from an employee a further covenant restricting him from entering the service of a competitor is accordingly well recognised, and the first question in this case is whether upon a proper construction of Article II of the Security Agreement the restriction accepted by the respondent can be said at this stage to be, as the Vacation Judge thought, wider than was necessary or reasonable for the protection of the petitioners. If this cannot be said then it should be enforced by interim interdict if the balance of convenience requires it. So far as Article II is concerned, when it is read in its context, and in light of what would be reasonably within the contemplation of the parties to the Agreement when it was entered into, it means just what it says. In particular it prohibits the employee in the possession of important trade secrets who is under a duty not to disclose them from inter alia working as an employee of a competitor in any capacity for a period of two years after the end of his employment with the petitioners. There is nothing whatever unreasonable in this restriction for the risk of disclosure of secrets consciously or unconsciously is bound to be present whenever the employee has entered the service of any competitor to whom the trade secrets would be of value. The Vacation Judge was of opinion that the restriction would prohibit the respondent from working for Levi Strauss & Co. in any country in the world and he was clearly right in this. One of his reasons for holding that the restriction was too wide was, however, that on the averments before him there was nothing to show that the petitioners traded anywhere except in the United Kingdom. That reason, if it was a good reason, has now disappeared as the result of the amendment of the pleadings allowed in this Court. The only other reason which the Vacation Judge gave for holding the restriction to be too wide was that it appeared to prohibit the respondent from taking up employment with a competitor in a department of the competitor's business which was not concerned itself with the manufacture and sale of jeans. The fact that the restriction does have this effect, however, does not make it unreasonable since the risk of disclosure of trade secrets is bound to arise whenever the restricted employee becomes an employee of a competitor and it does not matter where in the competitor's organisation he is required to serve, nor does it matter either in what capacity he enters that employment.

In his reply on this branch of the argument, counsel for the respondent who was not in dispute with the petitioners upon the relevant law, renewed the submission made to the Vacation Judge and contended in the first place that the restriction was too wide since it would prevent the respondent from working for Levi Strauss & Co. in, say, Taiwan even if the petitioners did not trade there at all. The second submission followed the reasoning of the Vacation Judge in urging us to hold that a restriction which precluded the respondent from taking up employment of any kind with a competitor was prima facie unreasonable and unnecessary for the petitioners' protection.

In our opinion the submissions for the petitioners are to be preferred. We accept that the restriction when it is properly understood, having regard to its context and the objectives of the Agreement, means that the respondent must not be employed by a competitor anywhere or in any capacity for the limited period of two years after 31st August 1977. Is such a restriction too wide having regard to the legitimate interest of the petitioners to prevent their trade secrets from coming to the knowledge of any competitor of theirs? If it is accepted, as it must be at this stage, that the respondent is an employee in the possession of trade secrets which would be of value to any competitor of the petitioners in the world's jeans market and that the respondent has properly been interdicted ad interim from disclosing these secrets, the restriction, as we have construed it, is not prima facie unreasonable at all. The risk of trade secrets of the petitioners coming into the knowledge of rivals obviously arises whenever an employee in possession of these secrets joins the ranks of a competitor for in the service of that competitor, in any capacity, anywhere in the world, the employee may deliberately or unwittingly enable the competitor to acquire the benefit of these trade secrets in the trade in which he is in competition with the petitioners. There is no doubt in this case, according to the averments, that Levi Strauss are among the most important competitors of the petitioners in the world market in jeans and, having regard to the real interest of the petitioners to prevent even unintentional disclosure of their trade secrets to a competitor by a former employee, we can see nothing unreasonable in a restriction designed not only to prevent the respondent from working for such a competitor in any of their jeans factories or departments, but also to prevent him from becoming employed by that competitor at all during the short period of the restriction.

If, as we have held, the restriction is not prima facieunreasonable, ought it to be enforced by interim interdict? We have no doubt that it should be, for the balance of convenience strongly favours that enforcement. The risk of serious and, it may be, irreparable damage to the petitioners' business and interests if no interim interdict is pronounced far outweighs the consequences to the respondent of restoring the order which was recalled in the Vacation Court. He will, no doubt, lose for two years, or until the petition is disposed of on its merits, whichever is the earlier, the opportunity of working for Levi Strauss & Co., but it cannot be left out of account that the petitioners are willing to continue to pay his salary while the litigation continues and to assist him to find other employment in the garment manufacturing industry in any capacity which does not involve direct competition with the petitioners' product nor the risk of disclosure of their secrets to their trade rivals.

All that remains for consideration is the form of the order to be pronounced. Since 15th September 1977 the respondent has altered the position by joining Levi Strauss & Co. although he knew full well that the petitioners were determined to enforce Article II if they could, and to come to this Court at the earliest opportunity. In these circumstances we have allowed amendment of the prayer of the petition and what the petitioners now seek is an order interdicting the respondent from continuing in employment with Levi Strauss & Co. either in the United Kingdom or elsewhere in the world for a period of two years. In the events which have happened that is an appropriate order and in allowing the reclaiming motion we shall pronounce interim interdict in these terms.